Dollar Tree, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION PLAN

STOCK-BASED COMPENSATION PLAN

12 Months Ended

Feb. 03, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLAN

STOCK-BASED COMPENSATION PLANS

Fixed Stock-Based Compensation Plans

Under the Company’s 2011 Omnibus Incentive Plan (“Omnibus Plan”), the Company may grant to the Company’s employees, including executive officers and independent contractors, up to 4.0 million shares of its Common Stock plus any shares available under former plans which were previously approved by the shareholders. The Omnibus Plan permits the Company to grant equity awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance bonuses, performance units, non-employee director stock options and other equity-related awards. These awards generally vest over a three-year period with a maximum term of 10 years.

Stock appreciation rights may be awarded alone or in tandem with stock options. When the stock appreciation rights are exercisable, the holder may surrender all or a portion of the unexercised stock appreciation right and receive in exchange an amount equal to the excess of the fair market value at the date of exercise over the fair market value at the date of the grant. No stock appreciation rights have been granted to date.

Any restricted stock or RSUs awarded are subject to certain general restrictions. The restricted stock shares or units may not be sold, transferred, pledged or disposed of until the restrictions on the shares or units have lapsed or have been removed under the provisions of the plan. In addition, if a holder of restricted shares or units ceases to be employed by the Company, any shares or units in which the restrictions have not lapsed will be forfeited.

The 2013 Director Deferred Compensation Plan permits any of the Company’s directors who receive a retainer or other fees for Board or Board committee service to defer all or a portion of such fees until a future date, at which time they may be paid in cash or shares of the Company’s common stock, or receive all or a portion of such fees in non-statutory stock options. Deferred fees that are paid out in cash will earn interest at the 30-year Treasury Bond Rate. If a director elects to be paid in common stock, the number of shares will be determined by dividing the deferred fee amount by the closing market price of a share of the Company’s common stock on the date of deferral. The number of options issued to a director will equal the deferred fee amount divided by 33% of the price of a share of the Company’s common stock. The exercise price will equal the fair market value of the Company’s common stock at the date the option is issued. The options are fully vested when issued and have a term of 10 years.

In conjunction with the acquisition of Family Dollar in 2015, the Company assumed the Family Dollar Stores, Inc. 2006 Incentive Plan (the “2006 Plan”). The 2006 Plan permitted the granting of a variety of compensatory award types, including stock options and performance share rights.

The 2003 Non-Employee Director Stock Option Plan (NEDP) provided non-qualified stock options to non-employee members of the Company’s Board of Directors. The exercise price of each stock option granted equaled the closing market price of the Company’s stock on the date of grant. The options generally vested immediately. This plan was terminated on June 16, 2011 and replaced with the Omnibus Plan.

Total stock-based compensation expense was recorded in the accompanying consolidated statements of operations as follows:



	Year Ended
	February 2,		February 3,		January 28,
(in millions)	2019		2018		2017
Cost of sales	$	12.1	$	12.8	$	10.8
Selling, general and administrative expense	51.2		53.0		49.5
Total stock-based compensation expense	$	63.3	$	65.8	$	60.3

Restricted Stock

The Company issues service-based RSUs to employees and officers and issues performance-based RSUs to certain officers of the Company. The Company recognizes expense based on the estimated fair value of the RSUs granted over the requisite service period, which is generally three years, on a straight-line basis or a shorter period based on the retirement eligibility of the grantee. The fair value of RSUs is determined using the Company’s closing stock price on the date of grant.

The following table summarizes the status of RSUs as of February 2, 2019 and changes during the year then ended:



	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at February 3, 2018	1,525,252		$	79.37
Granted	838,335		94.34
Vested	(681,202	)	79.84
Forfeited	(236,285	)	84.23
Nonvested at February 2, 2019	1,446,100		$	86.96

In connection with the vesting of RSUs in 2018, 2017 and 2016, certain employees elected to receive shares net of minimum statutory tax withholding amounts which totaled $23.2 million, $27.4 million and $21.9 million, respectively. The total fair value of the restricted shares vested during the years ended February 2, 2019, February 3, 2018 and January 28, 2017 was $54.4 million, $60.3 million and $42.4 million, respectively. The weighted average grant date fair value of the restricted shares granted in 2018, 2017 and 2016 was $94.34, $78.63 and $80.13, respectively. As of February 2, 2019, there was approximately $43.4 million of total unrecognized compensation expense related to these RSUs which is expected to be recognized over a weighted-average period of 21.8 months.

Stock Options

Stock options are valued using the Black-Scholes option-pricing model and compensation expense is recognized on a straight-line basis, net of estimated forfeitures, over the requisite service period.

Certain of the Company’s directors elected to defer their compensation into stock options under the 2013 Director Deferred Compensation Plan. These options vest immediately and are expensed on the grant date. In 2016, the Company granted 0.2 million stock options with a fair value of $4.0 million from the Omnibus Plan to an officer of the Company. The fair value of these stock options is being expensed over the five-year vesting period. The Company recognized $1.3 million of expense related to these stock options in both 2018 and 2017. The Company did not recognize any expense related to these stock options in 2016.

The weighted average assumptions used in the Black-Scholes option pricing model for the officer award granted in 2016 are as follows:



	Fiscal 2016
Expected term in years	6.50
Expected volatility	24.51		%
Annual dividend yield	—		%
Risk free interest rate	2.09		%
Weighted-average fair value of options granted during the period	$	22.10

Amounts for options granted in 2018 and 2017 are immaterial.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model. The expected term of the awards granted is based on an analysis of historical and expected future exercise behavior. Expected volatility is derived from an analysis of the historical volatility of the Company’s publicly traded stock. The risk free rate is based on the U.S. Treasury rates on the grant date with maturity dates approximating the expected life of the option on the grant date.

The following tables summarize information about options outstanding at February 2, 2019 and changes during the year then ended:



	Number of Shares		Weighted Average Per Share Exercise Price		Weighted Average Remaining Term	Aggregate Intrinsic Value (in millions)
Outstanding, beginning of period	523,083		$	70.14
Granted	9,804		87.82
Exercised	(136,073	)	54.89
Forfeited	(29,618	)	71.05
Outstanding, end of period	367,196		$	76.17	5.94	$	5.3
Options vested and exercisable at February 2, 2019	230,378		$	77.41	5.94	$	3.0



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding at February 2, 2019	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Options Exercisable at February 2, 2019	Weighted Average Exercise Price
$56.90 to $76.72	181,940	5.61	$	73.97	46,196	$	73.73
$76.73 to $76.97	151,404	5.70	76.97		151,404	76.97
$76.98 to $79.75	12,031	6.38	78.14		10,957	78.10
$79.76 to $85.00	11,581	7.77	82.46		11,581	82.46
$85.01 to $107.31	10,240	8.82	94.02		10,240	94.02
$56.90 to $107.31	367,196	5.94	$	76.17	230,378	$	77.41

The intrinsic value of options exercised during 2018, 2017 and 2016 was approximately $12.3 million, $18.3 million and $11.8 million, respectively.

Employee Stock Purchase Plan

Under the Dollar Tree, Inc. Employee Stock Purchase Plan (ESPP), the Company is authorized to issue up to 8,278,124 shares of Common Stock to eligible employees. Under the terms of the ESPP, employees can choose to have up to 10% of their annual base earnings withheld to purchase the Company’s common stock. The purchase price of the stock is 85% of the lower of the price at the beginning or the end of the quarterly offering period. Under the ESPP, the Company has sold 5,315,026 shares as of February 2, 2019.

The fair value of the employees’ purchase rights is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



	Fiscal 2018		Fiscal 2017		Fiscal 2016
Expected term	3 months		3 months		3 months
Expected volatility	18.8	%	10.9	%	14.6	%
Annual dividend yield	—	%	—	%	—	%
Risk free interest rate	1.9	%	1.1	%	0.4	%

The weighted average per share fair value of purchase rights granted in 2018, 2017 and 2016 was $18.64, $13.62 and $13.43, respectively. Total expense recognized for these purchase rights was $3.3 million, $2.0 million and $1.6 million in 2018, 2017 and 2016, respectively.